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Operator
Good morning, my name is Nicole, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Royal Caribbean Cruises Limited fourth-quarter earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question and answer session.
(Operator Instructions) I would now like to turn the call over to Mr.
Brian Rice to begin.
Please go ahead, sir.
Brian Rice - EVP and CFO
Thank you, Nicole, and good morning, everyone.
I would like to thank you for joining us this morning for our fourth quarter earnings call.
With me here today are Richard Fain, our Chairman and Chief Executive Officer, Adam Goldstein, President and CEO of Royal Caribbean International, Dan Hanrahan, President and CEO of Celebrity Cruises and Ian Bailey, our Vice President of Investor Relations.
During this call, we will be referring to a few slides which we have posted on our investor website, www.RCLinvestor.com.
Before we get started, I would like to refer you to our notice about forward-looking statements on the first slide.
During this call we will be making comments that are forward-looking.
These statements do not guarantee future performance and do involve risks and uncertainties.
Examples are described in our SEC filings and other disclosures.
Additionally, we will be discussing certain financial measures which are non-GAAP as defined, and a reconciliation of these items can be found on our website.
Richard will start with his comments, I will follow with a recap of our results, give an update on our booking environment and provide our initial thoughts about 2012.
Adam and Dan will then talk more about our brands and provide you with insight from some recent consumer research we have done, after which will open the call for your questions.
Richard?
Richard Fain - Chairman & CEO
Thanks, Brian, and good morning, everyone.
We actually have so many good things happening in our Company and in our industry that I wish that those things could be the focus of this call.
However, given the magnitude of the tragic incident in Italy and the fact that it is so recent, we feel obliged to comment on how this may affect us going forward.
All of us, personally, as employees and as an industry, all of us are saddened by the tragedy.
This was an unheard-of event for our industry, and all of us were heartsick to learn of it.
But it's important to note that it's the very rarity of such an event that makes it so noteworthy.
As a Company and as an industry, we will take whatever lessons can be learned from this, and we will continue to dedicate ourselves to providing the best and the safest vacations for our guests.
Fortunately, most people understand all this, and I am absolutely confident that this event will not have any significant long-term impact on our business.
But, while I'm convinced about the long-term, we also need to be realistic about the short-term.
Not surprisingly, while our industry has been in the glare of the media spotlight for almost three weeks, we have seen an impact.
Booking volumes dropped significantly immediately following the event, and they've remained down in the mid-to low teens.
As you would expect, there are some notable trends emerging.
Cancellations as a result of the incident have simply not been a factor.
It's not surprising to us, but it is reassuring.
In Europe, the media coverage has been more extensive as the event was closer to home, and bookings have declined more than in the United States.
Similarly, the recovery for the same reason is happening faster in the US than in Europe.
And as to be expected, closer in bookings have declined more than further out bookings.
Lastly, knowledgeable customers, are much more comfortable than people who have never taken a cruise.
Looking at the seasonality of the impact, we've noted that quarter one was already quite well booked prior to the event, so that quarter has been somewhat isolated from the impact.
But for our second and third quarters, the level of uncertainty is high, although there have been some encouraging data points recently.
As we have resumed our advertising and as the headlines have subsided, booking volumes have shown improvement.
I caution that a few days does not make a trend, but it is encouraging.
Ultimately, we believe that while this is a tragedy, and a fresh and a painful one at that, most customers recognize that the industry safety record speaks for itself and our long-term business model is very much intact.
Against this background, we would prefer not to be making any public projections; in fact, I wish we didn't have to make any comments at all about bookings so soon after the event.
We are in uncharted territory, and our traditional models simply don't cover events like this.
However, after much debate and much soul-searching, we eventually concluded that giving you our best perspective and explaining all the uncertainties was the best approach and the fairest one.
We have worked hard to follow that approach, and I hope that you will accept it with which -- in the spirit with which it is given.
With that in mind, despite the impact of this year's earnings, we are continuing to look to the future and to build the profitability of our business.
I would therefore like to shift from this unfortunate event which has monopolized our thoughts, and focus on our core business.
Now, that business is thriving, despite the challenges.
Prior to the tragedy in Italy, we would have said that our business was facing some of the most significant near-term economic and geopolitical headwinds in our history, and we were winning.
The US market has shown surprising strength, improving how robust a market for cruising it is.
Europe has been more difficult, but even there, we were anticipating higher yields in 2012 partially because of lower comps.
Australia is doing well, as is the rest of the Pacific Rim, the effects of Japan's earthquake are behind us, and that gives China a huge boost.
And there, we were adding Voyager of the Seas in China this spring.
She will be the largest, and I would modestly say, I think the best ship serving that area, and she's making a big splash.
As a new market, the China opportunity does cost us a great deal to address, and it will take some time to pay off; nevertheless we think this is an important strategic move for us and we have accepted the short-term cost that it entails.
Costs are indeed actually a constant focus, More than half of the expected increase for 2012 relates to structural changes which have direct revenue offsets, and we've tried to explain that.
The other 1% to 2% relates to investments which will drive yield improvements going forward such as ship revitalizations, international expansion and technology investments.
As our press release indicated, we had great pricing momentum coming into this year.
Much better, in fact, than I believe folks were expecting, driven in part by these ongoing investments.
Now, this year marks an important milestone for Royal Caribbean.
For the first time in our history, the majority of our business is now coming from customers outside the US.
This is the culmination of a strategic shift we started about five years ago and is in recognition with the fact that while the US market continues to be strong and to flourish, the demand for our cruises and the demand for our ships is growing at an even more dramatic rate abroad.
We have had to make a significant investment to make this happen, and it certainly feels good to have reached such an important milestone.
As I've said before, diversification is a good strategy, even when it seems that the market to which you are diversifying is the one having issues in the short-term.
It's a two edged sword, and in this case, European cruising happens to be the one impacted by economic challenges, geopolitical turmoil and the fallout from the tragedy.
At the same time, China is experiencing the labor pains associated with any new market.
But all of these challenges are transitory.
Our long-term trajectory is unchanged, even with a difficult economy and other factors, we were heading into a powerful 2012.
The tragic events in Italy are a blow, but only to the short-term.
Our record for safety, our record for outstanding vacations and our ability to develop new and exciting markets gives us confidence about the path going forward.
And that confidence is undimmed.
We are committed to staying the course and doing the best by our guests, our employees, our shareholders and our communities going forward.
With that, I'd like to turn this back over to Brian to take us through a little more detail.
Brian?
Brian Rice - EVP and CFO
Thank you, Richard.
On the second slide we have summarized our performance in the fourth quarter.
We generated net income of $36.6 million, or $0.17 per share.
Net yields improved 3.5% on a constant currency basis and 3.2% on an as reported basis.
We saw strong performance in the Caribbean where ticket yields improved by double digits, and Asia continued solid recovery in the aftermath of the Japan tragedy.
Europe yields were down overall, driven by Holy Land and other Eastern Mediterranean itineraries.
On the cost side, excluding fuel, our net cruise costs were up 3.7% on a constant currency basis and up 3.6% on an as reported basis.
As you know, we manage our costs on an annual basis, and the impact from things like dry dock schedules, marketing and repair and maintenance expenses always cause timing issues among quarters.
The fourth quarter was consistent with our guidance and part of another solid year of cost controls.
On slide 3, we have summarized our full-year results.
Net income was [$607 million], or $2.77 a share.
As you may recall, at this time last year, we provided initial earnings guidance for 2011 of between $3.25 and $3.45 per share.
Fuel price increases decreased our earnings by $0.20 per share, and the impact of the Japan earthquake and the Arab spring cost us as an additional $0.65 per share.
All other factors, including solid revenue and cost performance, exceeded the upper end of our initial guidance.
Net yields improved 2.4% on a constant currency basis and 4.1% on an as reported basis.
Ticket yields were very strong in the Caribbean, Baltic and Alaska while pricing in the Eastern Med and Asia were down due to the geopolitical events.
Pricing improved slightly more from the United States and Europe, but this appears to have been more driven by itinerary mix than the economy.
On the cost side, net cruise costs excluding fuel were up 1.3% on a constant currency basis and up 2.3% on an as reported basis.
Finally, for this fixed income folks on the call, I would like to mention that we generated $1.6 billion in operating cash flow and reduced our overall debt by over $650 million during the year.
We continue our focus on returning to investment grade in the near-term.
Now, I'm sure most of you are interested in hearing about the current booking environment.
We tried hard to be as transparent as possible in the press release, but I must caution that it has been less than three weeks since the Costa Concordia incident.
The demand environment is still in a state of fluctuation and with very limited data, it is difficult to draw any definitive conclusion.
That said, here is what we know.
Immediately prior to the incident, our bookings were running about 5% ahead of a year ago and at higher prices.
All four quarters of the year were booked at higher load factors and higher per diems then the same time last year.
The incident occurred on January 13 and since that time, cancellation activity has been within normal levels.
In the first two weeks after the accident, when the media attention was greatest and practically all marketing activity was suspended, new reservations combined for all of our brands and itineraries were down approximately 20%.
This week, the media coverage has begun to subside and advertising is beginning to come back.
Over the last five days, new reservations are down in the low to mid teens with each day showing slightly better performance.
We have seen a pronounced difference between consumer behavior in North America and Europe.
North American demand appears to be recovering steadily, and recently has been down high single digits.
European demand, on the other hand, remains more depressed, but even there, we are seeing the beginning of a recovery.
We believe this is driven by a number of factors including greater media coverage, closer proximity to the accident, less familiarity with cruising and to some degree, the compounding effect of a relatively weaker economy.
Our other international source markets including Latin America and Asia-Pacific are showing less impact from the incident.
From the seasonal point of view, demand for spring and summer cruises is slowed the most, followed by close in bookings.
For the first quarter, we anticipate only a modest impact to yields because of the strength of our order book before the incident and the low cancellation activity.
Our brands for the most part have maintained pre-incident pricing levels for the spring and summer, as they continue to evaluate the demand patterns and determine the best revenue management strategy.
This is one of the reasons for the increase in uncertainty and our extra caution in providing forward guidance.
Interestingly, although the volume is relatively small, [to date, our new bookings for the fourth quarter and 2013] have not been affected.
Again, the base is relatively small, but we believe this is an indication that the incident will not have a long-term impact on our business.
Now, I would like to talk to you about our forward guidance.
We actually debated quite a bit about whether to even provide guidance, given the high level of uncertainty; but in the end, we felt it was important to be as transparent as possible.
You'll notice our guidance ranges are wider than usual, but not as wide as all the possible outcomes.
On slide 4, you will see the guidance for the first quarter.
We expect yields to be up 5% to 7% on a constant currency basis and between 4% to 6% on an as reported basis.
As we noted in our press release, we have made some changes related to our international distribution system and shifted some deployment for strategic purposes that will have a positive impact on yields, but a negative effect on costs.
The impact of these changes is greater in the first quarter.
In the case of net yields, the impact of these changes for the first quarter is approximately 300 basis points.
So, on a constant currency basis, we are looking for a like-for-like increase of 2% to 4%.
Net cruise costs excluding fuel are expected to increase 6% to 7% on a constant currency basis, of which approximately 450 basis points is due to the changes I mentioned.
Also driving the increase is a disproportionate amount of dry dock costs related to refurbishments in the quarter.
Based on current prices, we've included $224 million of fuel expense in the quarter and we are 53% hedged.
Turning to slide 5, we've laid out our preliminary thoughts for the full year.
It was just a few weeks ago we were building a forecast around net yield increases in the mid-single digits.
With less than three weeks of new data to digest, providing a revenue forecast is clearly more art than science.
Some of the negative factors weighing in our consideration include the 20% decline in new bookings during the peak of wave season.
Tremendous awareness globally of the incident, apprehension among new cruisers and only meager signs of recovery so far for European source customers.
Some of the positive considerations include improving trends from North American source guests.
Most consumers view this as an isolated incident, we've resumed our marketing activities and there is still some time to recover booking volumes prior to the summer season.
Based on all this, we have set an initial target for net yields to increase between 1% and 5% on a constant currency basis and between flat to up 4% on an as reported basis.
Included in these figures is approximately 200 basis points from the changes in our international distribution and deployment initiatives.
As we mentioned in our press release, these distribution changes, along with deployment initiatives, will increase our net cruise costs by approximately 300 basis points.
Absent these changes, net cruise costs, excluding fuel, are expected to increase between 1% and 2% on a constant currency basis and flat to up 3% on an as reported basis.
The 1% to 2% constant currency increase is driven by modest inflationary pressures and strategic investments such as information technology.
Based on today's fuel prices, we've included $889 million in fuel expense for the year, and we are 55% hedged.
Over the last five years, our brands have reduced fuel consumption by approximately 18% per APCD and while our efficiency initiatives continue, our guidance for 2012 includes a slight increase due to deployment shifts.
Our initial estimate for earnings per share for the year falls between $1.90 and $2.30.
To help you with your reconciliations, I will mention that at today's prices, fuel expense is $0.57 per share higher than 2011 and current FX rates caused a negative impact of approximately $0.20 per share versus last year.
Now, I'd like to turn the call over to Adam for his comments.
Adam?
Adam Goldstein - President & CEO, Royal Caribbean International
Thank you, Brian, and good morning, everyone.
Although it seems like a long time ago now, we are nevertheless pleased to have finished 2011 with solid fourth-quarter results.
The Caribbean Cruise market ended the year in good health, and a number of our programs around the world began their northern winter or southern summer seasons with momentum.
Consequently, bookings for the fourth quarter remained strong through December and our outlook for 2012 was promising entering the wave.
Our enthusiasm was bolstered by the launch of our very well-received new marketing approach on January 9 featuring the line The Sea is Calling, Answer it Royally.
As the others have noted, the situation today is considerably more uncertain than at the time of year -- turn of the year, excuse me.
While a few of our products are relatively unscathed by the downturn in bookings over the last three weeks, we have experienced softness in our main portfolio of Caribbean and European cruises.
We believe that a recovery of booking momentum is highly likely, the question, of course, is the timing and strength of the prospective recovery.
As of Monday, January 30, we have resumed our full normal marketing effort in the United States inclusive of television advertising.
In other countries, we are in the process of resumption.
We continue to watch booking trend developments very closely.
To this point, we have not taken any significant pricing actions.
It is worth noting that relative to any other time of the year, we are currently taking a high-volume of bookings, and we are taking those bookings at higher prices than we were at the same time a year ago.
In the past, I have commented on the diversity of Royal Caribbean International's customer base.
While it is too early to tell how much disruption there will be to our normal sourcing pattern, it is reassuring to know that we can draw on customers from around the world to fill many of our cruises.
For example, in recent years, we have sourced about 75% of our guests on European cruises from outside of the United States.
If North America should recover booking strength more rapidly than Europe, we have the possibility of marketing our European cruises more extensively in North America to raise the percentage of Americans and Canadians on European cruises.
This is one benefit of being a global cruise vacation brand.
Dan?
Dan Hanrahan - President & CEO, Celebrity Cruises
Thanks, Adam, good morning, everyone.
The fourth quarter performed better than we had anticipated at the time of our last call due to strong close in demand across the Caribbean product which accounted for about one-third of our capacity.
Our Caribbean products sailing from South Florida performed particularly well, although we saw upside across nearly our entire portfolio.
We started out the year very strong and in fact, had a record booking week for Celebrity during the first week of wave.
We continue to see this close in demand for our Caribbean product which makes up the majority of our portfolio this winter.
We have all four of our Solstice class ships sailing in this market, along with our Solsticizied Constellation and newly Solsticized Summit, which just came out of dry dock this past week.
We are on pace to finish ahead of where we finished in Q1 2011 and '10.
In addition, our non-Caribbean products which represent about 20% of our capacity for this time period are also performing well and ahead of prior-years.
Further out, we are booked ahead of same time last year as well as 2010, although we are not immune to the slowdown that has already been referenced.
While we are still working in a period of uncertain demand, we have started to see improvement in bookings this week.
It's still too early to say that we're out of the woods, however, the demand we've been experiencing with the exception of some close in tactical pricing that we would do normally, is coming in at the same prices that we were getting during the record week I mentioned.
We did commission research last week to look at how the consumer is reacting to the Concordia incident.
Because of the coverage this has received, we looked more broadly than the last round of research I told you about.
We looked at North America, the UK, Europe, Australia and South America.
While it's clear that awareness is nearly universal, it's also clear that the consumer sees this as an isolated incident and generally feel confident that the cruise lines are taking the necessary steps to ensure the safety of their guests.
Past cruisers in particular continue to rate cruising high on their list of vacation options.
The past cruisers, there's little to no difference in their intent to cruise from the research we did back in October.
Potential first-time cruisers did show a decrease in interest, however, we have seen no increase in cruise rejectors.
Our net takeaway of this research is that while bookings have slowed down, we do not think the slowdown will be long-lasting.
Before I close, I'd like to mention our Solsticizing project continues and as previously mentioned, we just completed the Summit revitalization last week.
Summit, like the Infinity and Constellation before her, looked magnificent and features many of the iconic venues and attributes that we showcased in all our Solstice class ships.
Millennium will go into dry dock in April before she begins her Alaska season and is the last of the Millennium class ships to be completed.
Finally, the Reflection, our fifth and final Solstice class ship is under construction in Germany for an October delivery, and like her sister ships, will be truly spectacular.
In addition, I'm pleased to announce that we were recently named Best Cruise Line at the annual Travel Weekly Global Awards in London, as well as Best Luxury Cruise Company at the Travel Agents Association Award in Dublin, Ireland.
These, along with all the other awards and accolades that we received during 2011 further cement our place as the leader in the premium cruise category, not only in the US, but also in Europe.
Brian?
Brian Rice - EVP and CFO
Thanks, Dan.
Nicole, we'd now like to open the call for questions.
As a reminder, we ask you to limit your questions to no more than two.
If you have more than that, we'd be more than happy to address them after the call.
Nicole?
Operator
(Operator Instructions) We will pause for just a moment to compile the Q&A roster.
Your first question is from the line of Felicia Hendrix of Barclays Capital.
Felicia Hendrix - Analyst
Hi, good morning, guys.
And thank you for all the color, pre-incident and post-incident, it's very helpful to get a picture of what was going on then and now.
So, interestingly you've -- well actually, Adam, you mentioned that you resumed advertising.
I might have missed this, but Dan, has Celebrity resumed advertising?
Because I have a question related to that, and I guess mainly it is, the question is, do you have some kind of historical data points that could help us understand how much advertising typically will stimulate demand?
Obviously, you've said that demand has started to improve.
I would think that in correlation with resumed advertising, that would help.
And I'm wondering if you would think that the wave season might now be extended?
In other words, you might push that out a little bit farther since you missed a few weeks?
Adam Goldstein - President & CEO, Royal Caribbean International
Hi, it's Adam.
Effectively, what we've done is taken the advertising that we didn't do as scheduled in the second and third weeks of the wave and redistributed along with the other planned advertising across about a five-week period that began this week.
So, we would traditionally do, and we had planned this year to do the most volume of advertising in the first quarter because of the wave.
And we will expend the anticipated amount of funds in the first quarter that we had originally planned to do, just distributed differently by week.
So, our historical experience, I guess you could say under more normal circumstances is that that level of marketing has clearly inspired wave bookings.
And we are certainly hopeful that the recovery process on a week by week basis will allow us to create the -- recreate the momentum that we have before.
Dan Hanrahan - President & CEO, Celebrity Cruises
Felicia, to answer your question, yes, we are back fully in the market advertising.
And I agree with what Adam said, I think that the advertising we're doing will definitely help stimulate demand.
But I also think the fact that the incident is getting less coverage is also helping.
And the research we did, we did see that people had not started to sway away from cruising in general, they did see this as an isolated incident.
So, I think the improvement is a combination of things.
Our marketing people would tell you it's the brilliance of their marketing, but I also think it's -- some of this is being driven by the incident starting to get into the past a little.
Richard Fain - Chairman & CEO
You know, Felicia, it's Richard, and the second part of your question was interesting.
I don't know that I've thought of it in precisely those terms before.
But, I think one of the things we've experienced in the past is when something causes an interruption in bookings, we never fully get those back.
There's a one-time impact, and I remember a number of years ago when hurricanes shut down our call centers, we really felt that the calls a lost during that day were never fully recovered.
So, I think they'll be some of that, but I do think the idea that this could extend the wave season is a possibility as well.
Felicia Hendrix - Analyst
Thanks, and then my second part of the question is actually for you, Richard, and Brian.
A lot of us are trying to figure out, and you probably are as well, what this incident could have on the industry as a whole in terms of cost.
Whether it's higher safety costs or higher insurance costs, your insurance premiums are going to go up in general or maybe for -- maybe not for you but in particular, but how have you thought about your cost structure going forward?
The costs that are beyond what's in your control?
Richard Fain - Chairman & CEO
Yes, and you're right, we certainly have thought about it.
I'm not sure that we have any great insight into the question.
There's so much we don't know and of course, we and everyone else will be looking at this closely.
Take them separately.
With respect to actual new safety requirements et cetera, that's something I'm very much looking forward to, and I think you always learn something.
You're well aware that our mantra is continuous improvement.
But on the other hand, actually, I think as an industry and as a Company, our procedures and processes and safety expenses are done well.
And I don't know if we're aware of anything that is -- that we're aware of at this point that would likely lead us in the direction that there's the costs coming there We think actually it's more likely that you will see tweaking because our -- I think our systems are pretty good.
But, that's the kind of thing we really need to keep an open mind about.
We don't know if there's other things to be learned, we'll certainly be looking for that.
And a similar answer with respect to insurance, that's -- even -- big and ponderable, I don't know how insurance companies work.
Obviously, many people say a significant incident like this affects every other hole in the insurance industry and that will affect everybody, not only in our industry, but in other industries as well.
But, I think in the scheme of things, we're still known and the insurance companies will look at us as a safe industry.
So, while I think there clearly will be something which -- and by the way, we haven't made -- we haven't tried to estimate it and haven't tried to include it here, while there clearly be something that we will learn from this and that we can do, we're not aware of anything at this point which would be dramatic.
Felicia Hendrix - Analyst
Okay, thank you.
I appreciate your answers.
Operator
Your next question is from the line of Sharon Zackfia of William Blair.
Sharon Zackfia - Analyst
Hi, good morning.
I guess a couple questions.
Brian, I'm a little unclear about some of the changes that happened to the yield on the net cruise cost and really, what changed in the distribution system and why some of the deployments would affect so much?
So, maybe some clarity there and how that flows for the rest of the year.
I know you said the biggest impact's in the first quarter, could you give us an idea of the cadence of the impact to yields and net cruise costs in the remaining three quarters?
Brian Rice - EVP and CFO
Sharon, I'll give you an example.
There were several changes that we made in what we call distribution.
Prior to this year, in one of our Latin American countries, the distribution was actually through a charter arrangement.
And though we're staying partners with that distributor now, we'll actually not be chartering the ship, and we'll be bringing all the revenues and all the costs into our structure.
That also had a little bit of an impact on their fuel line as well.
It was a series of those sort of structures, it is more weighted towards the first quarter.
I don't have the exact break out in front of me, but I'm guessing more in the fourth quarter, probably the least amount in the third quarter.
Some in the second and some in the fourth is where that would be weighted.
In terms of some of the other more structural things where we talked about deployment initiatives, Richard referenced the fact that the Voyager of the Seas is going to China.
We also have a pretty significant increase in capacity in Australia this year, and those are really developmental markets for us, which is driving some of the higher fuel consumption.
The cost of doing business in these markets is more expensive, but -- and we've tried to break out the quantification on the yield side as well.
We do get a benefit there.
Sharon Zackfia - Analyst
Maybe a separate question, as well appreciate the giving of guidance and such an uncertain time.
I guess it's -- I guess I'm wondering how you're approaching the guidance as you look at this year.
Are you taking kind of what you currently have on the books and creating some bandwidth around that?
Are you taking the trends of the last two weeks and trend lining that going forward?
Any kind of more granularity as we look at this guidance as to how you came up with it.
Brian Rice - EVP and CFO
Sharon, I don't think there's a single methodology that we overweighted on anything.
We probably used everything you just mentioned and probably 20 other scenarios.
I think our revenue management team, although we have only three weeks of data, we have a lot of experience with different elasticity scenarios and understanding when you have certain amount of shortfall in demand, what sort of elasticity would be required to be able to make up for that.
We did a lot of what if scenarios, going from slow recovery to more rapid recovery and tried to come up with -- as I mentioned in my opening comments, this is more of an art than a science.
But I think we have the right folks giving us these projections, and we spent a lot of time over the last week or so, one of the reasons for the call today was to try to get that extra knowledge.
Again, there is a lot of uncertainty, that this is our best estimate from all the tea leaves we've been able to read.
Sharon Zackfia - Analyst
Great, thank you.
Operator
Your next question is from the line of Kevin Milota of JPMorgan.
Kevin Milota - Analyst
-- the questions here.
Just trying to get a sense for how deployments are changing for '12, given some of the distribution initiatives that you're going through.
So, if you could give some clarity in terms of capacity in Europe versus what you're moving around and then also, how that kind of place through for North America?
So, for the Caribbean and Alaska cruises would be great.
Adam Goldstein - President & CEO, Royal Caribbean International
Hi, Kevin, it's Adam.
Well, we mentioned the major ones actually, I think, along the way, but certainly, the Voyager of the Seas in China and also Australia because it has seasonal deployment in the two regions which was on top of already a growth that we have as several brands.
Particularly Royal Caribbean and Celebrity in Australia, has moved more of a deployment portfolio to the other side of the world, and that's a bigger driver for us than anything that's going on this year in Europe.
Where actually we've reduced eastern Mediterranean capacity, somewhat increased northern European capacity, but Europe on the whole is not a meaningful change in our deployment, slightly down to be exact.
Kevin Milota - Analyst
Okay, thanks and then also from kind of a revenue management standpoint and pricing standpoint, you made some comments that you haven't seen pricing fall meaningfully.
Is it more that you're holding the line on price directly after the Concordia event, or -- so you're holding out for potentially higher prices as you see booking activity improve?
Dan Hanrahan - President & CEO, Celebrity Cruises
Kevin, it's Dan, good question.
If we were at any other time of year, we would be really excited about the demand that we have, but because we're in the wave, it's down a little bit.
But we have held out on the pricing.
We have made some tactical pricing decisions in the first quarter that we would have made regardless of what had happened as we work to fill in holes in our inventory.
But at this point, we're getting good demand, we're just not getting wave demand.
And this week, as you've heard everybody say, we're starting to see improvement and the pricing has stayed the same.
Kevin Milota - Analyst
Okay, very good, thank you.
Operator
Your next question is from the line of Steve Wieczynski of Stifel Nicolaus.
Steve Wieczynski - Analyst
Brian, I was wondering if you could help us kind of think about how -- for guidance for '12, and I know this is a pretty tough question to answer, but how are you guys thinking about the booking window for the next couple of months, just given that it sounds like Dan really hasn't -- Dan talked about not moving pricing too much.
But how are you guys -- just want to try to figure out how -- what are you guys thinking about the booking window here going forward?
Brian Rice - EVP and CFO
I think, it's kind of a daily adjustment.
I think it is important to recognize that as needed, we are taking pricing action.
Our initial read on this was that there was a contraction of the booking window.
Clearly for summer sailings, there's been less of an urgency to make the bookings.
One of the reasons wave season is usually what it is, is you have a lot of people looking to escape the winter, you have people who are now looking at a new calendar and trying to plan their vacations for the year and getting ahead of their summer vacation planning.
Plus, you have a lot of people who are already beginning to plan next holiday season.
And the bookings that have held up the best are the further out bookings, which is where we think we have evidence of the fact that this should be somewhat limited in its duration of impact.
But we are, to some degree, betting on that more contracted window.
But our revenue management team will be watching this, depending on the particular market and product and brand that we are looking at.
And they are prepared to take the necessary actions in the near-term to maximize the revenue within a given period.
Steve Wieczynski - Analyst
Okay, got you, thanks.
And then second question, you gave a lot of color around your outlook kind of pre-the incident, but can you just kind of help us think about how you're thinking about the European market kind of going to '12 in terms of what you guys were expecting out of yields in that market?
Brian Rice - EVP and CFO
Yes, I -- the Baltic did exceptionally well last year and has been off to a very good start going forward.
I think in our projections we were probably roughly to get about half of the impact of the Arab spring back in the Eastern Med.
We do have, as Adam alluded to, I think the number is about 15%, 16% less capacity in the Eastern Med in '12 than we had in '11.
And obviously, that's helping us, and the tensions are not quite as escalated as they were a year ago.
So I think our internal projections were at that time to get about half of it back.
Steve Wieczynski - Analyst
Okay, great.
Thanks, guys.
Operator
Your next question is from the line of Robin Farley of UBS.
Robin Farley - Analyst
Great, thanks a lot for all your transparency and disclosure this morning.
I have a question, I think I probably know what the answer to this is, but it would be helpful to hear you talk about.
Is the impact we're seeing on bookings from the Concordia, does that have any impact on your thinking about the option?
You have an option for second Sunshine class ships that expires later this month, and I was just wonder if you just talk about how that affects your thinking?
Richard Fain - Chairman & CEO
Thanks, Robin.
Obviously, something like this effects all of -- I think almost any topic, especially in the immediate aftermath.
And as you know, we won't specifically comment what we are about to dot, I think -- I am actually glad you asked it in retrospect.
At first I dreaded it, but I think I'm glad you asked it because I think it really helps emphasize a point which is, we just don't think this is going to have a long-lasting impact.
It's obviously having a near-term impact, and that's officer painful, and it obviously has an emotional impact and that's painful too.
But I think as a practical matter, we think that people understand that cruising is safe, and so we don't think in the long-term this will have any huge impact on cruising.
And so I think it is unlikely to play a significant factor in the decision about exercising the option.
That decision is a long-term decision, and I think the long-term outlook is not materially different.
Operator
Your next question is from the line of Tim Conder of Wells Fargo Securities.
Tim Conder - Analyst
Thank you and also, gentlemen, thank you for the detailed color that you've given here this morning, it's very, very helpful.
A couple pieces, Adam and Dan, can you comment what you're seeing given the positioning of your brands as far as booking volume between the brands?
Are you holding up better with the Royal Caribbean brand, the Celebrity brand and then also with the recovery that you're seeing?
And I guess as a part of that question also, the onboard spending that you are seen by brand post the event?
So, that's question number one and then I'll talk circle back for number two in a second here.
Adam Goldstein - President & CEO, Royal Caribbean International
Hi, Tim, it's Adam.
Obviously, we are normally not making distinctions between brand performance on these calls.
Under the circumstances, I will say that as Bryan mentioned and possibly Richard too in their original comments, one of the trends that has emerged over the last few weeks is, relatively speaking, reticent of potential first-time cruisers come into the category.
And as you know, one of the responsibilities of Royal Caribbean International for the Company and for the industry is to attract first-timers into the category.
So, of our brands, we would naturally feel the most impact in the aftermath of a tragedy like this.
And I'll turn it over to Dan for his comments.
Dan Hanrahan - President & CEO, Celebrity Cruises
Tim, you know, my comments are similar to Adam's.
We have a very strong Captains Club program that we've shifted a lot of our marketing that direction, and I think that's been helping us.
And this is a little bit anecdotal, but I'll give you an interesting fact.
We worked hard on board our ships to sign up people for the next cruise.
In January, we saw no difference pre or post the incident and the fact, January was a record month for us in terms of sign-ups.
And I think it's important to note that Azamara is also doing well right now.
We've seen good things there, and all our brands have strong loyalty programs.
So, I think that we have the ability to pull from a very loyal base, and it's a big base.
Adam Goldstein - President & CEO, Royal Caribbean International
Tim, if I can come back to your question from an on-shipboard revenue, I think I mentioned on the last call that our brands were engaged in a variety of activities and initiatives to boost onboard revenue going forward.
And there is, of course, extremely little data that has occurred in 2012, but to the extent that we've seen it, it appears that these initiatives are beginning to bear fruit, and we have not seen any notable decline or even any decline in the shipboard revenue in the last few weeks.
Tim Conder - Analyst
Okay.
And then the second question would relate to yield guidance contrasted to the EPS guidance.
And Brian, I know there's a lot of other things, you talked about the spending initiatives in the higher fuel and the FX impact.
But given the 400 basis point range and net yields, and I know that you guys are -- it's really struggling, and that's a wide understandable range.
But that with the roughly 26% share impact per yield point, and yet that would imply almost from that alone about a $1 range and an EPS.
Can you kind of walk us from that to the range that you have of $0.40?
Brian Rice - EVP and CFO
Yes, Tim, I think we -- a $0.40 range for us on EPS its a very wide range, and I think it's safe -- again we're not -- there is a lot more volatility here than we've seen in some time, and I think there are possibilities outside of both the yield range and the EPS range.
But we try to give a range, I think that it is unlikely that you would get the best of both worlds or the worst of both worlds.
And so what we try to do is find a combination in which we felt we were in a reasonably comfortable range.
Tim Conder - Analyst
Okay, okay.
No, no, that's fine, thank you very much, gentlemen.
Brian Rice - EVP and CFO
We're focused more around the midpoints of the deviation from those midpoint when we are trying to give the EPS range.
Tim Conder - Analyst
Great, great, thank you.
Operator
Your next question is from the line of Steve Kent of Goldman Sachs.
Steve Kent - Analyst
Hi, good morning.
Just a couple questions.
First, when you think about how you'll go back on marketing and back on TV, would you consider keeping sort of your list price the same but maybe using more onboard promotions as an incentive to maybe getting people on.
So, sort of to induce some travel, but maybe not have as much of an impact?
And then secondarily, just as I think about the first quarter, my recollection you're guiding 5% to 7% net yield growth, and how much of that is already locked in?
And if I then do the math for the balance of the year, you're suggesting a much more dramatic slowdown for the rest of the year.
Am I getting that right to get to that number that you're forecasting of 1% to 5%?
Brian Rice - EVP and CFO
Steve, just quickly, I'll take the second part of the question.
I think you're right, we -- ordinarily, I think we would've looked for more of the summer to be driving some of the improvements given the recovery within the Mediterranean and what we were seeing in our advance bookings.
I think we are looking at the biggest haircut as a result of the incident coming in Q2 and Q3 at this point in time.
I'll let Adam talk about the advertising.
Adam Goldstein - President & CEO, Royal Caribbean International
Yes, hi, Steve.
Well, one of the benefits of the sophistication of our revenue management approach is we have a whole arsenal of tools that we're using from time to time throughout the year for lots of purposes, not just in the aftermath of something very significant.
And clearly, onboard credits is one of the main type of tools that we can engage when we need to be active promotionally.
So, we are looking across countries, products, varying cruise lengths, and we will try to apply the promotional techniques that make the most sense.
If there is a market that has a higher percentage of air or sea business, for example, then we can work around the flights in terms of promotional activity.
If it's more of a cruise only market, it might be onboard credits, as you mentioned.
So, we have a lot of opportunities, and we're watching as the trends emerge on a day by day basis, and then we'll start to apply whatever we need to apply to meet our expectations.
Steve Kent - Analyst
And how much is booked for the first quarter already?
How much is essentially locked in?
Brian Rice - EVP and CFO
It's a very high percentage.
Obviously, January is behind us at this point in time.
I think most of the volatility at this point would be some of the March sailings and then as, I believe in Tim's question, a lot would come down to the onboard revenue spending.
But, I think we're pretty comfortable within our range at this point in time.
Steve Kent - Analyst
Okay, thank you.
Brian Rice - EVP and CFO
I think Dan wanted to follow up on Adam's comments as well.
Dan Hanrahan - President & CEO, Celebrity Cruises
Steve, I think your point's a good one.
We are trying to make sure that we can keep our prices up.
We launched a program this week where we did have deposits and so instead of the full deposits, we did have deposits, and we think we've gotten some pretty good traction off that.
We did an air promotion in the UK this week, and we think we've gotten some real good traction off of that.
So, we're going to use the whole toolkit here, and the objective is to keep that price where we think it should be.
Good question.
Steve Kent - Analyst
Thank you.
Operator
Your next question is from the line of Greg Badishkanian of Citigroup.
Greg Badishkanian - Analyst
Thank you.
Two questions.
First one is, I know there's nothing exactly like this, but typically, what's the length of the impact to bookings in that yield from previous industry incidents that maybe have gotten negative media coverage?
And then the second part of that is, would you expect to bounce back the following year from maybe first-time cruisers that are holding off this year?
So, maybe you'll have some pent-up demand into 2013?
Richard Fain - Chairman & CEO
I think with respect to the first part of the question, we would have to say that this is just so unusual a situation that we really can't do much in terms of drawing comparisons.
We think that the better job that we and our industry organizations and our travel agents do in communicating the facts about cruise ship safety will be an important element of reassuring of public.
I -- our sense is, and we are already seeing it in the bookings that -- and as Dan pointed out, we saw it in some of the research that we've done, that the public really does get it.
They really do understand that it is a safe and secure industry, notwithstanding very sensational headlines at the moment.
But I think they separate the two and even in a very safe environment, there is no -- as we've said elsewhere, there's no such thing as perfect safety, just perfect dedication to safety.
And I think our industry has that and will continue to emphasize that.
So, I think that's a question of how well we get that message out, and we're working to do that.
I'm just not sure we can make comparisons to other industries.
And with respect to the people and how this impacts next year, I think we will, next year and future periods, I think we -- I made the point earlier that some of this isn't so much convincing people, it's just if people didn't take an action, they didn't book a cruise this week, some of that just simply is never recovered, but it has no ongoing impact.
So, I think there's sort of an automatic benefit next year, and we had an extraordinary loss of bookings for a few weeks in January.
And just isolated out on those bookings that will give us a bump in the beginning of next year.
Greg Badishkanian - Analyst
Great, thank you.
Operator
Your next question is from the line of Assia Georgieva of Infinity Research.
Assia Georgieva - Analyst
Good morning, just one question.
Assuming that the booking volumes from the last, let's say three to five days, remained constant, how long would you be willing to hold price?
And, if we go back to the H1N1 outbreak in Mexico back in April of 2009 when I think both you and Carnival actually held price for about the month, is this something you would be willing to do given it's wave season?
Dan Hanrahan - President & CEO, Celebrity Cruises
Assia, this is Dan.
That's a good crystal ball question, I think.
We have seen some improvement that's encouraging this week, and each week has gotten better.
I think Brian -- when Brian mentioned earlier and I had mentioned in my opening comments that we've done close in tactical pricing to fill what we need to fill, to make sure that we don't just totally miss revenue, we'll continue to do that.
We've had a lot of discussions around that topic.
I mean, how long do we wait?
I had a staff meeting yesterday, it was the number one topic.
At this point, are holding fast.
I think we've done some very good things with our marketing and with the promotions that we have in place and we've seen some traction.
So, for the time being, we're going to hold our ground.
How long that will last will depend upon what kind of results we get over time.
Assia Georgieva - Analyst
And Dan, even though it's wave, given current booking volumes, you can hold price for quite a bit?
Dan Hanrahan - President & CEO, Celebrity Cruises
Well, I think if you look at our guidance, that would be -- that gives you an indication of what the volatility is and how wide the spread is.
But we'd like to hold price, but if we have to take pricing actions to fill ships, we'll definitely do it.
Assia Georgieva - Analyst
Well, we'll wait and hopefully we won't have to see that then.
Again, this kind of relates to Tim Conder's question, that the spreads yield's a little bit wider than one would expect to drop-down to the EPS line.
Brian Rice - EVP and CFO
Yes, Assia, it is, and we realize if you take the high end of the yield and low end of cost and the low-end of yield and the high end of cost, going to have a much greater spread.
I think our range on costs are pretty tight that we've provided and as we've given you a lot of transparency as to what's driving that, this really is about the yields.
But we've put forth our best effort here to try to give you a range that we think we can manage to.
But again, there's still tremendous uncertainty out there.
Assia Georgieva - Analyst
I understand, Brian.
Thank you, thank you both.
Brian Rice - EVP and CFO
Okay.
Nicole, I think we have time for one more question.
Operator
Thank you, sir.
The final question is from the line of Jamie Rollo of Morgan Stanley.
Jamie Rollo - Analyst
Yes, thank you very much.
Just a couple of questions.
First on the yield guidance, pre and post incident.
You've reduced your expectations by about 200 basis points at the midpoint.
I'm just wondering, given your fairly confident comments about the recovery and bookings recently, plus the fact that you sold, I guess over half the year, is that sort of -- it seems quite a large number, that's all, given what you've seen most recently.
And also, on the yield guidance, on that sort of change versus before the incident, you haven't changed your pricing.
As you say, you might let that happen, but would you consider letting occupancy sort of slip for a bit and maybe try and hold prices rather than sort of to price to fill?
Thank you.
Brian Rice - EVP and CFO
Thank you, Jamie.
I think you're right, the midpoint's around 200, I think is bright here is anywhere from a little impact to maybe as much as 300 or 400 basis points.
Again, if we've conveyed a sense of confidence around the last few days and extrapolating that to the fact that the damage is done and we are away from us.
I want to be very clear.
We believe there is still a tremendous amount of uncertainty here.
We're giving you our best estimates based on three weeks of data.
I think we are encouraged by the last several days but, I think as Richard said, it's dangerous to extrapolate that.
This is not a clear pattern at this point in time.
But, we've tried to be as transparent as possible.
I think -- I want to be careful here, I think it's dangerous for us to be talking too much about our pricing strategy in a public forum.
I think our revenue management team will be looking at this on an individual sailing basis, making judgment calls about how to best optimize our revenue on any given sailing and in total.
Our strategies vary widely by brand and they vary by market and based on the conditions.
There will be occasions where we may sacrifice load factor for price and there will be other times where volume will be more important to us.
And it is something that each brand has its own strategy and we have a lot of product managers within the individual brands that they actually know their markets best.
So, it's not kind of a one-size-fits-all revenue management practice.
Richard Fain - Chairman & CEO
And Jamie, if I could just emphasize one point that Brian made.
I think we've actually gotten rather spoiled in our industry that we are able to predict our yields as accurately as we have.
Now, we really -- this is a situation that we don't feel that we have, in our experience, necessarily gives us as good an indication as we would like, and, it really doesn't prepare us for this.
So, I actually would have said, if anything, I think you should take it that there is more risk than usual, then we'll outside the ranges rather than less risk.
We're really very uncertain looking forward.
We hope we haven't conveyed more knowledge than we have.
We've tried to be open, we've tried -- I thought Brian summarized it very well by saying here is all the pluses and here is all the minuses.
But, I don't think anybody yet knows how to balance those, and so we're trying to get the best information we can.
But I think in fairness to you we need to say that the uncertainty is a big part of what we -- sounds ironic, the uncertainty is it big part of what we know, and I would just emphasize that looking forward.
Jamie Rollo - Analyst
Great, that's great.
If I could just have one quick follow-up, you mentioned the survey of potential cruisers and that the reduction and intention amongst those who are new to cruising, can you just quantify what that change in intention was and also, how important new cruisers are to you a group?
Thanks.
Dan Hanrahan - President & CEO, Celebrity Cruises
Jaime, it is Dan.
New cruisers are important to us as a group.
So, it's a good part of our business.
Without -- yes, it's one-third of our business, I'm being coached a little bit here.
The survey, I want to point out, it's a point in time.
So, I want to be careful to not go overboard because what we did as we looked at country by country by country, we saw different things in countries, we saw that people that have cruised before, there interest has remained high.
We saw that there was an increase.
When we asked the question, are you more or less interested in going on a cruise?
We saw that there was an increase in less interested people that haven't ever cruised before.
They were cruise considers, they weren't rejectors, but that had increased.
And without getting into specifics on any individual market, it did increase for potential first-timers.
Brian Rice - EVP and CFO
Okay.
Jamie Rollo - Analyst
Thank you very much.
Richard Fain - Chairman & CEO
Great, thanks, Jaime, and thank you, everyone, for joining us today.
As usual, I am will be available throughout the day for any follow-ups you may have.
And again, thank you for joining us, and we wish everyone a great day.
Operator
Thank you.
This concludes today's Royal Caribbean Cruises Limited fourth quarter earnings conference call.
You may now disconnect.